In periods of high inflation, some brands reduce the content of their products instead of increasing their selling price, so that the consumer receives less for the same price. This is a legal practice, but sometimes not an entirely transparent way of maintaining the producer’s profit margin. Experts have given it a catchy name: shrinkflation. Analysts refer to this phenomenon as “invisible inflation”. In essence, it consists of reducing the amount of product sold to the consumer while maintaining or even raising its price. It is a practice that has been going on for decades, but has become more systematic and sophisticated in recent years.
The concept is attributed to the British-born American economist Philippa “Pippa” Malmgren, an expert in geopolitics and technological economics, and advisor at the time to presidents such as George W. Bush and Barack Obama. She christened it “shrinkflation”, wittily combining the term inflation with the verb “shrink”. In her book ‘Signals: How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy’, Malmgren defined it in very simple and intuitive terms: “We speak of shrinkflation when a product reduces its size, its quantity, or the number of units sold in the same package without a reduction in price. It is giving less for the same thing”.
In recent years, the economist, who is very active on social networks, has referred to the concept in humorous terms: the strange case of the shrinking product”. As is often said of cholesterol, “a silent killer”. And its main victim is the economy of many households, because it impacts family incomes and personal finances and affects mostly frequently consumed products, such as packaged food. This practice of self-interested “shrinkage” of the volume of product sold has become very common in periods of high inflation. Academic research has shown that consumers are very reluctant to accept explicit price increases, but instead tend to passively accept reductions in volume, size or quantity that do not imply a price change even when they are visible to the naked eye. It usually occurs when the reduction is in the range of 5% to 10% of the total product volume.
Legal, but not entirely popular
For the manufacturer, this type of self-interested shrinkage serves to increase profit margins significantly without the loss of competitiveness and the associated cost in terms of brand image, which often involves a price increase. Although analysts such as Pippa Malmgren herself have described this practice as “cynical” and “fundamentally dishonest” compared to price increases resulting from inflation, which is a natural effect of economic developments, the fact is that shrinkflation is legal as long as the volume of product offered for sale is correctly and explicitly communicated. How consumers perceive it is another matter.
However, shrinkflation can be a double-edged sword. On the one hand, it can be economically profitable in the short term, in periods of high inflation when both price increases and changes in product composition or ingredients are difficult or counterproductive strategies to implement. However, when consumers perceive that this resource has been used, they may feel cheated, lose confidence in the brand and look for alternatives.